Blackstone

[Jeff S]

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If Nikon bought the sensor division of Kodak and decided to stop selling sensors to competitors it would kill Leica.

 

If Leica decided to drop Kodak and migrate to a new family of sensors it would be difficult and expensive, and might possibly kill the company if there were too many bumps in the road.

 

I would expect Leica to have a contingency plan for all major suppliers, regardless of why or when they would need to put one in place. Perhaps one scenario would be more difficult than another, but an alternate plan would be required nonetheless. To not have a set of supplier contingencies would be beyond foolish for any business dependent on outside sources for their key products. I don't consider Leica that foolish.

 

Jeff

[sdai]

No sex, no drugs, no photokina rumors, this "news" is worthless.

[johnbuckley]

The comparison has been made before but it's worth making again: Leica is like Apple.

 

More particularly, Leica is like Apple circa 2001.

 

They have: a great and longstanding brand, a small but absurdly loyal fan base (all of us!), a commitment to quality and design and one or two killer products (think the first iMac and first gen iPod) that are just starting to break out into the wider market. And a reputation (deserved or not) for being "expensive"!

 

Now, Leica have already started to take a few leafs out of the Apple playbook. Think of those product launch presentations. And now starting to roll out the retail stores.

 

I think Leica is now uniquely positioned to go huge - just like Apple was ten years ago - and, like Apple, not lose its "DNA" in the process.

 

But to do that it needs capital, it needs management savvy and it needs the execution skills and expertise to run a global operation. It needs to exploit its brand. It can't be in the ridiculous position where people want to buy its products but they just can't get them because Leica can't produce them fast enough. (It needs a Tim Cook!)

 

THIS is the opportunity that Blackstone have seen, and I hope they can help Leica execute on it.

 

As a Leica fan I, for one, am excited at what this development will bring.

 

I think you're right in your analogy. I pray you are right about Blackstone. But private equity, like venture capital, is about the exit. Unless -- and this is a real possibility, if Leica has Apple-performance -- Dr. K wants to have Leica shares (owned now by Blackstone), go through an IPO and come on the public market, someone has to buy them out at the end of the day. I disagree with whomever said they (Blackstone) know who the buyer is -- they don't, or that buyer would have bought the shares, not Blackstone.

 

So, either these shares end up traded on an exchange, or some other player buys them. And the only players, I would think, who would be interested in buying and holding Leica shares would be another camera company. And that's what really scares me.

[sdai]

No one in the industry would be interested IMHO ... Panasonic needed the halo of a Leica moniker to buy their credibility at one time but they have long passed the stage.

 

With the sale of 44% stake in the company, I suspect that the owner of the company has recouped most if not all of his investment. Therefore the end game with the engagement of a PE firm is all about finding the next sucker as many have already pointed out.

[TEBnewyork]

This is a dead on accurate assessment . Why would any of the Blackstone money go back into the company. The shares sold are owned by Dr Kaufmann and he receives the proceeds . What it does is put Leica back into the market which is necessary for the stock based compensation that I am sure the current management is seeking.

 

If Leica issues new shares (has an offering) then they will raise funds that can be invested. Unfortunately all the important financial decisions will be based on short /medium term gains in the equity valuation. There are many ways to spin the tale but look for the executive compensation program next year and big grants to the CEO.

 

I don t for a minute believe Dr Kaufmann got into Leica as a turn around opportunity . His actions follow a person that truly loves the company and the finances are a means to an end . Unfortunately he has chosen a path that has not usually worked out for those loyal to the company/brand etc.

 

I don't really understand this assessment. First up, why do you assume that Kaufman won't take some dilution of his holding in order to use the cash from Blackstone to grow operations and potentially increase the valuation of the company as a whole? In your scenario it is strictly a cash out. Even with Leica showing a great turnaround from their darkest days, in its current form, I can't see the company generating the type of returns that would be overly interesting to Blackstone - meaning Blackstone would want to jumpstart and accelerate growth. You don't get that by simply cashing out the owner.

[colonel]

As long as Blackstone does not set up management team staffed by KODAK management stars and no diversification into printers etc there is a chance of keeping status quo, otherwise change is always good way to either survive or fail.

 

prepare for a "quick print" button on the M10

[colonel]

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No one in the industry would be interested IMHO ... Panasonic needed the halo of a Leica moniker to buy their credibility at one time but they have long passed the stage.

 

With the sale of 44% stake in the company, I suspect that the owner of the company has recouped most if not all of his investment. Therefore the end game with the engagement of a PE firm is all about finding the next sucker as many have already pointed out.

 

Leica is a profitable niche company. It is definitely not a suckers investment

 

There is always the possibility of Leica competing with Canon and Nikon with a massive injection of cash. It can use its name to bring out a high-end CSC for example (which it is considering anyway)

 

Whether we want that as Leica users is something else.

 

Personally I am quite happy if Leica has cheaper more mass market cameras. As long as the quality of the lens and camera is a cut above the rest, to maintain their reputation, and as long as they keep the quirky M series going.

[giordano]

Anyone who wants to compare Leica with Apple should remember that Apple (a) doesn't do any of its own manufacturing and has no commitment to the workers who do, ( isn't interested in producing long-lasting repairable products and © tries very hard to lock its customers into a rapid, consumer-lust-driven upgrade cycle.

 

Is that really what you want from a favourite brand?

[k-hawinkler]

Isn't in part the driver Moore's law?

Namely doubling of transistors on a chip every 18 months at more or less constant cost?

 

K-H.

[Guest Holy Moly]

tries very hard to lock its customers into a rapid, consumer-lust-driven upgrade cycle.

 

 

Ahh, from Apple Leica learned how to tease M9 shooters for the cosmetical upgrade into the M9-P......

[mmradman]

Anyone who wants to compare Leica with Apple should remember that Apple (a) doesn't do any of its own manufacturing and has no commitment to the workers who do, ( isn't interested in producing long-lasting repairable products and © tries very hard to lock its customers into a rapid, consumer-lust-driven upgrade cycle.

 

Is that really what you want from a favourite brand?

 

Apple products are like digital cameras. Only difference Leica cameras are built in Germany but also rebadged Panasonics.

 

There is always opportunity to outsorce to low cost country regardless of what marketing people want you belive.

[UliWer]

So Blackstone provided pure cash. That seems to be the reason.

 

Exactly.

 

The Blackstone investment is nothing else than a bank loan. So why didn't Mr. Kaufmann chose the proper way to loan money from a bank? Perhaps the banks' condition were worse than those he got from Blackstone?

 

I don't know, but I remember Mr. Kaufmann telling the audience at the last year's meeting during the Photokina, why the investment in the new Leitz-Park at Wetzlar was postponed. He was quite frank: the conditions of the bank were unacceptable. So he just said no.

 

In the meantime more things than the Leitz Park came on the agenda. Perhaps the banks were unreasonable again and he had another source for the money needed at hands - with better conditions.

 

Just my speculation.

[earleygallery]

I would expect that Blackstone would want, demand, a higher return than they could get for merely lending the money!

 

It's not a loan at all, a loan is completely different.

[Lightwrangler]

I would expect that Blackstone would want, demand, a higher return than they could get for merely lending the money!

 

Maybe they could get an even higher loan by lending the money to the republic of Greece. But maybe they just believe Leica is a safer investment in these times

 

Mike

[sblitz]

It is all about having the capital necessary to succeed. in this business, success is not falling behind the technology while sustaining the quality. the rise of mirrorless cameras puts the world back into leica's sweetspot, having lost it in the 1960s when slr's took off and left leica in the dust as an interesting relic of a different age. now the question is, does leica have the capital to produce the product and the capacity to produce enough quickly enough to capture this opportunity. we will see in a year at photokina and in the years to come. i do know this -- capital is the lifeblood of any firm or high street camera shop and this gives them capital.

[earleygallery]

As an aside, how come this has only just made it to Leica Rumours?!! Surely they should have reported it months ago.

 

Anyway, the sale (subject to formal rubber stamping) is a fact. We can only sit on the sidelines now and see what comes of it.

 

In one camp we have the optimists - they are going to pump a load of money into Leica, along with Dr K's €130M+ , they will buy the Kodak sensor business and launch the new M10 and make more Summilux and Noctilux lenses for everyone.

 

The there is the other camp that predicts rape and pillage at Solms, fat cat bonuses, exploitation of the brand name and the wait for someone else to come along and pick up the pieces.

 

I wonder who will be right?

[bill]

The realists, as usual

 

Regards,

 

Bill

[glenerrolrd]

I don't really understand this assessment. First up, why do you assume that Kaufman won't take some dilution of his holding in order to use the cash from Blackstone to grow operations and potentially increase the valuation of the company as a whole? In your scenario it is strictly a cash out. Even with Leica showing a great turnaround from their darkest days, in its current form, I can't see the company generating the type of returns that would be overly interesting to Blackstone - meaning Blackstone would want to jumpstart and accelerate growth. You don't get that by simply cashing out the owner.

 

Might be helpful if you explained the scenario under which Dr Kaufmann allows the funds(or some significant portion) to remain in the business ,retains 51% ownership and does not in some manner issue new shares (his words).

 

My experience has been that the primary objective of this type of transaction is to create liquidity in an undervalued asset and to have a currency(stock) to raise additional capital. But this would require DR K to as you pointed out “dilute his ownership position” .

 

The other alternative as has been pointed out would be to borrow the funds for expansion through some form of debt instrument .

 

The first part of the transaction is Blackstone buying the remaining minority position from Dr K. Unless I am mistaken the funds go to him . The implication has been that Dr K sells his shares to BS and the proceeds are reinvested in the company.

 

What am I missing?

 

The motivations of the parties to the transaction seem pretty obvious but the implications for the future of Leica maybe different. Blackstone would appear to be in this for a short to medium gain. Would assume that they believe Leica is undervalued and that the brand is under leveraged . Their payout occurs when they sell their position.

 

Development of a small market premium product like the S2 is inconsistent with the new business model .

 

Of course my perspective is purely from the customers side .....Leica has really gotten quite a few things right over the past 2-3 years and I have enjoyed the benefits of the M9 and S2 . Opening new stores in asia , expanding licensing arrangements ,developing mass market products ..etc..may increase the value of the company but appear unlikely to benefit the customers that hang out here at the LUF.

[TEBnewyork]

How do founders of a startup get capital? They dilute their holdings by getting a VC to invest in the business.

 

I did not hear that Kaufman said that there would be no new share issuance. But, I assume there are ways for Leica as a company to buy back shares from Kaufman at a cheap price and resell those shares to Blackstone. Gives a partial cash out to Kaufman and an infusion of capital into the company. I am not an expert on all of the exact ways to do the stock deal but I do stick by my belief that this is not just a cash out for Kaufman.

 

I think part of the question that Kaufman would have to ask is am I better off with less of stake in a more valuable company or having a 100% stake in the company as it exists today.

 

Might be helpful if you explained the scenario under which Dr Kaufmann allows the funds(or some significant portion) to remain in the business ,retains 51% ownership and does not in some manner issue new shares (his words).

 

My experience has been that the primary objective of this type of transaction is to create liquidity in an undervalued asset and to have a currency(stock) to raise additional capital. But this would require DR K to as you pointed out “dilute his ownership position” .

 

The other alternative as has been pointed out would be to borrow the funds for expansion through some form of debt instrument .

 

The first part of the transaction is Blackstone buying the remaining minority position from Dr K. Unless I am mistaken the funds go to him . The implication has been that Dr K sells his shares to BS and the proceeds are reinvested in the company.

 

What am I missing?

 

The motivations of the parties to the transaction seem pretty obvious but the implications for the future of Leica maybe different. Blackstone would appear to be in this for a short to medium gain. Would assume that they believe Leica is undervalued and that the brand is under leveraged . Their payout occurs when they sell their position.

 

Development of a small market premium product like the S2 is inconsistent with the new business model .

 

Of course my perspective is purely from the customers side .....Leica has really gotten quite a few things right over the past 2-3 years and I have enjoyed the benefits of the M9 and S2 . Opening new stores in asia , expanding licensing arrangements ,developing mass market products ..etc..may increase the value of the company but appear unlikely to benefit the customers that hang out here at the LUF.

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[StephenPatterson]

Might be helpful if you explained the scenario under which Dr Kaufmann allows the funds(or some significant portion) to remain in the business ,retains 51% ownership and does not in some manner issue new shares (his words).

 

What am I missing?

 

It can be as simple as Dr. Kaufmann loaning the money back to Leica, presumably at a more favorable interest rate than banks were offering. This is often done in closely held corporations, where the principal loans money back to the company for a specific purpose. I have also seen this type of transaction where the principal uses the money to fund a new facility and then becomes the landlord, receiving rent payments from his own company. Or if an acquisition scenario the money loaned back can be used as part of an acquisition offer. In both scenarios the overall stock and ownership ratios are maintained (i.e. Dr. K still has his 51% and complete control).